PNC Mortgage, a Division of PNC Bank, N.A. Succesor to National City Bank and National City Mortgage, a Division of National City Bank of Indiana v. John Howard and Amy Howard

Citation: Not availableDocket: 05-17-01484-CV

Court: Court of Appeals of Texas; June 1, 2018; Texas; State Appellate Court

Original Court Document: View Document

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The document is an appellate brief from PNC Mortgage, a division of PNC Bank, appealing a decision from the 199th Judicial District Court in Collin County, Texas, involving appellees John and Amy Howard. The brief includes the identity of parties and their legal representation, highlighting the attorneys for both appellants and appellees. Key issues presented in the appeal include:

1. The trial court's failure to file findings of fact and conclusions of law after a timely request.
2. The trial court's error in granting interlocutory summary judgment favoring the appellees, specifically regarding:
   - PNC's authority to foreclose,
   - Proper appointment of the substitute trustee,
   - Effectiveness of foreclosure notice upon mailing,
   - Requirements for a wrongful foreclosure claim.
3. The trial court's failure to grant judgment in favor of PNC on its claim for equitable subrogation based on the established evidence.
4. An error in not granting judgment for PNC in its suit on the note, despite evidence supporting its right to collect on the note independently of its deed of trust lien.

The brief requests oral argument and includes sections outlining the statement of the case, arguments, and authorities supporting the appellants' claims.

Ad Villarai, LLC v. Chan Il Pak, 519 S.W.3d 132 (Tex. 2017), is referenced alongside numerous case law precedents that explore various legal principles in Texas law. Notable citations include:

1. Adebo v. Litton Loan Servicing, L.P., which addresses specific procedural concerns within Texas appellate courts.
2. Amberboy v. Societe de Banque Privee, highlighting issues related to banking and fiduciary duties.
3. Bank of America v. Babu, which discusses the standards for appeals and the burden of proof.
4. Calegon v. 2009 SWE, LLC, and Carroll v. PNC Bank, N.A., both examining loan servicing and mortgage issues.
5. City of Keller v. Wilson, emphasizing the standards for legal sufficiency in municipal cases.
6. Several cases, such as Grubbs v. Houston First American Savings Association and Nixon v. Mr. Property Management Co., touch on property management and landlord-tenant disputes.

The cited cases collectively inform the legal landscape regarding financial transactions, property disputes, and municipal law in Texas, reflecting the intricacies of Texas judicial decisions and their implications in subsequent cases.

Appellants PNC Mortgage, a division of PNC Bank, and National City Mortgage, a division of National City Bank of Indiana, are appealing an interlocutory summary judgment granted in favor of John and Amy Howard. Following this ruling, a nonjury trial was conducted, resulting in a final judgment for the Howards on October 11, 2017. The appellants requested the trial court to file findings of fact and conclusions of law regarding the nonjury trial, but the court did not fulfill this request. Subsequently, on November 10, 2017, the appellants filed a motion for a new trial, which the trial court did not address. The appellants filed a notice of appeal concerning both the interlocutory summary judgment and the final judgment on December 27, 2017. Additionally, the appellants have requested oral argument to provide the court with a deeper understanding of the case's facts and assist in resolving the issues presented.

The document presents four key legal issues regarding a home foreclosure case involving the property at 5783 Versailles Avenue, Frisco, Texas. 

1. The trial court is questioned for not filing findings of fact and conclusions of law as mandated by Texas Rule of Civil Procedure 296 and 297, despite a timely request after the bench trial.
2. The trial court's granting of interlocutory summary judgment in favor of the appellees is challenged on the grounds of misapplying the law to undisputed summary judgment facts.
3. The trial court is accused of error for not granting judgment for the appellants on their equitable subrogation claim, despite evidence supporting their right to subrogation.
4. The trial court is also alleged to have erred by not granting judgment for the appellants on their suit concerning the promissory note, despite evidence establishing their right to collect on the note independently from enforcing the deed of trust lien.

The factual background outlines that John and Amy Howard borrowed $894,900.00 on March 24, 2005, securing the loan with a promissory note and deed of trust. They ceased payments in November 2008 but continue to reside at the property. PNC Mortgage, as the successor to the original lender National City, has been paying property taxes since 2008. Foreclosure proceedings started in 2009 due to the Howards' non-payment, and they filed for bankruptcy to delay foreclosure. During bankruptcy, they acknowledged PNC as their mortgagee and entered into an agreement to cure their default.

The agreement to postpone immediate foreclosure and revert the loan to an installment plan was formalized in an Agreed Order Conditioning Stay by the bankruptcy court on September 29, 2009. The Howards failed to comply with this agreement, although they did make a payment of $1,012.50 to PNC through the bankruptcy trustee. Following the dismissal of the bankruptcy case, PNC accelerated the Note and issued a notice for a nonjudicial foreclosure sale scheduled for April 6, 2010, which resulted in the Property being sold to PNC for $825,000. The Howards subsequently filed a lawsuit alleging wrongful foreclosure, claiming PNC lacked authority to sell the Property and that the foreclosure sale was invalid due to Mr. Howard not receiving the required notice. The Howards sought partial summary judgment on these grounds, leading to PNC contesting their standing to challenge the foreclosure and disputing the interpretation of Texas law regarding notice delivery.

The Trial Court granted partial summary judgment in favor of the Howards, declaring the foreclosure sale void. Remaining issues regarding PNC's right to collect on the Note and its claim for equitable subrogation were tried, with parties stipulating that the Note was in default and proceeds were used to settle prior secured notes, alongside PNC paying property taxes from 2008 to 2016. After the bench trial, PNC discovered additional evidence of mailing the Notice of Acceleration to Mr. Howard but was denied admission of this evidence by the Trial Court. A Final Judgment favoring the Howards was issued on October 11, 2017, after which PNC filed a Motion for New Trial that went unaddressed. PNC appealed the judgments on December 27, 2017. 

PNC contends that the Trial Court's failure to issue Findings of Fact and Conclusions of Law, despite a timely request, constitutes harmful error. Under Texas procedural rules, such a failure is presumed to be harmful unless proven otherwise, particularly in complex cases with disputed facts or multiple grounds for recovery or defense, which the case presents.

The Trial Court improperly granted summary judgment in favor of the Howards, misapplying Texas foreclosure law in four key areas. First, it incorrectly determined that PNC lacked the authority to foreclose its Deed of Trust lien. The merger of National City into PNC established PNC's right to foreclose without a formal assignment, as Texas law specifies that all rights transfer to the surviving entity in a merger. Second, the Trial Court wrongly invalidated the foreclosure sale based on the alleged defect in the Appointment of Substitute Trustee. The Howard Deed of Trust allowed for the appointment of a substitute trustee without formalities beyond written designation by the lender, which PNC provided. Third, the Trial Court erred in concluding that the foreclosure notice was ineffective due to Mr. Howard's lack of physical receipt; Texas law states that notice is effective upon mailing, irrespective of actual receipt. Lastly, the Trial Court misapplied the law regarding irregularities in the foreclosure. To claim wrongful foreclosure, a borrower must demonstrate that any irregularity resulted in a grossly inadequate sales price. The Howards did not prove that the property sold for an inadequate amount, as it sold for $825,000, exceeding 50% of its appraised value of $917,575.

PNC is asserting its entitlement to equitable subrogation and the right to collect on its Note, contending that the Trial Court erred in denying these claims after the bench trial. PNC holds the Note and is the beneficiary under the Deed of Trust, with evidence indicating that $888,286.25 from the Note was used to extinguish prior liens on the Property. The doctrine of equitable subrogation allows a lender who pays off a prior lien to assume the rights of the prior lienholder. PNC argues that the Howards, who defaulted on the Note, acknowledged PNC as their mortgagee during Ms. Howard's bankruptcy proceedings. Despite identifying itself incorrectly in notices related to the foreclosure, PNC claims authority to act as the holder of an endorsed Note and as the successor to the original lender under the Deed of Trust. The Trial Court's partial summary judgment that invalidated PNC’s foreclosure sale and its subsequent ruling against PNC's claims are asserted as errors. Additionally, there is a procedural issue regarding the Trial Court's failure to file findings of fact and conclusions of law as requested after the bench trial. The remaining issues for determination include the enforceability of PNC’s Deed of Trust lien, its right to collect on the Note, and its right to equitable subrogation if the lien is deemed unenforceable.

Final Judgment was issued by the Trial Court in favor of the Howards on October 11, 2017, declaring PNC's Deed of Trust lien and Note void and unenforceable, denying PNC's claim for equitable subrogation, and ordering PNC to pay attorney’s fees to the Howards. PNC filed a timely request for findings of fact and conclusions of law as per Texas Rule of Civil Procedure 296, but did not receive a response from the Trial Court. Subsequently, PNC filed a Notice of Past Due Findings under Rule 297, yet the court still failed to issue the requested findings. The Texas Supreme Court mandates that a court must file findings when a timely request is made, particularly in cases where facts are disputed, as failure to do so can hinder an appellant's ability to present their case effectively. The absence of findings allows for affirming the trial court's judgment on various legal theories, which complicates the appellant's challenge. The default presumption is harmful error in the absence of findings unless shown otherwise. In complex cases with disputed facts, the presumption of harm cannot be easily rebutted. In such instances, the appellate court typically instructs the trial court to file the missing findings. Should the trial court fail to comply after such an instruction, the appellate court is required to reverse the judgment and remand for a new trial.

PNC contends that the trial court erred in granting partial summary judgment, asserting that this error necessitates the reversal of the final judgment and a remand for a new trial. If the court finds the summary judgment appropriate, PNC requests findings of fact and conclusions of law from the trial court to identify reversible errors in the trial record. The primary issue is whether the trial court incorrectly granted interlocutory summary judgment in favor of the appellees by misapplying Texas foreclosure law. 

The trial court’s decision that PNC's foreclosure sale was void due to a lack of authority to appoint a substitute trustee and conduct the sale is challenged. Specifically, PNC claims the trial court misapplied the law in four ways: 
1. It incorrectly decided that PNC, as the successor by merger to the original lender, lacked authority.
2. It erroneously found the appointment of the substitute trustee defective and claimed a recorded appointment was necessary, contrary to the Deed of Trust.
3. It determined that Mr. Howard’s failure to receive a copy of the Notice of Foreclosure Sale invalidated the sale.
4. It concluded alleged irregularities in the foreclosure process invalidated the sale without evidence that they led to an inadequate sale price.

The standard of review for summary judgment is de novo, meaning the appellate court will evaluate the trial court's decision without deference to its conclusions. The burden rests on the movant to prove no genuine issue of material fact exists and to establish entitlement to judgment as a matter of law, with all evidence viewed in favor of the nonmovant. PNC asserts it is the holder of the note and beneficiary under the Deed of Trust since at least December 29, 2009, based on publicly available merger documents and judicial admissions made by Ms. Howard in her bankruptcy proceedings.

PNC is identified as the mortgagee of the Howards, holding the Note and benefiting from the Deed of Trust as defined by Texas Property Code. PNC also serves as its own mortgage servicer, authorized to assist in foreclosure processes under Texas law. Following a series of mergers, National City Bank of Indiana became part of PNC Bank, N.A. The court can recognize the merger history without dispute, as noted in case law, including CitiMortgage, Inc. v Roper. Despite PNC's established status as the mortgagee, the Howards contested PNC’s authority to foreclose, asserting that an erroneous assignment by National City Bank of Indiana to its subsidiary undermined PNC's standing. However, the Trial Court incorrectly ruled that National City Mortgage had no rights regarding the Note and Deed of Trust at critical times during the foreclosure. The court overlooked that mergers automatically transfer all rights and interests to the surviving entity, as outlined in Texas Business Organization Code. PNC had sent notices of foreclosure and proceeded with the sale of the property, which was completed without valid challenge.

Federal law mandates that when national banks merge, all rights, franchises, and interests of the merging banks automatically transfer to the receiving association without the need for any formal transfer documents. In a relevant case, the U.S. District Court for the Western District of Texas ruled that PNC Bank, as the successor to National City Bank (NCMC), acquired all associated debts and assets, effectively stepping into NCMC's role as lender. Both state and federal courts have consistently held that a successor by merger automatically assumes the predecessor's status as lender and mortgagee. This principle was affirmed in various cases, demonstrating that the surviving entity retains all rights without needing formal assignments.

In the current matter, PNC argued against a trial court's finding that it lacked authority to proceed with foreclosure, claiming that Ms. Howard had acknowledged PNC's status as her mortgagee throughout the relevant timeframe. Additionally, an Appointment of Substitute Trustee was improperly filed by National City, using its pre-merger name, which led the Howards to argue that this mistake invalidated the foreclosure sale. The trial court agreed with this assessment, referencing prior Texas case law establishing that a foreclosure conducted by an improperly appointed trustee is void, rather than merely irregular. Consequently, the court granted Partial Summary Judgment in favor of the Howards, nullifying the April 2010 foreclosure sale.

In Burnett v. Manufacturer’s Hanover Trust Co., the Texas Court of Appeals clarified the requirements for appointing a substitute trustee under a deed of trust. The court held that if a substitute trustee is not properly appointed according to the deed's specifications, they lack the authority to sell the property. The court emphasized that the deed's stipulations must be strictly followed. In the case at hand, the Howard Deed of Trust allowed for a substitute trustee's appointment through a written designation by the lender without formalities. PNC designated Greg Bertrand as a substitute trustee in writing within a Notice of Acceleration sent to Ms. Howard, fulfilling the requirement. Even if earlier documentation was flawed, it was rendered irrelevant by this later designation.

The court also addressed the notice requirements for foreclosure, stating that notice is effective upon mailing, not receipt. The court found that the Howards' assertion that they did not receive the notice was insufficient, as the Deed of Trust indicated that notice to one borrower constituted notice to all. Texas Property Code §51.002 corroborates this by establishing that notice is complete upon mailing, and an affidavit confirming service is considered prima facie evidence of service. The Deed of Trust reiterated that if the lender invokes the power of sale, notice must be given in accordance with applicable law, which includes mailing a copy of the sale notice to the borrower.

The Texas Property Code states that notice is considered complete when mailed to the debtor's last known address, with postage prepaid. The Houston Court of Appeals has previously ruled that the critical factor for service of a Notice of Foreclosure Sale is not whether the debtor received the notice but whether it was properly served according to the statute. In the case of Calegon v. 2009 SWE, LLC, the court confirmed that the debtor’s claim of not receiving the notice does not challenge the compliance with the notice requirements under section 51.002. Likewise, testimony from John Howard regarding non-receipt does not legally demonstrate that notice was not sent.

The Beaumont Court of Appeals in Stanley v. CitiFinancial Mortg. Co. supported this view, stating that affidavits denying receipt do not address statutory requirements concerning the mailing of notice. In response to the Howards’ motion for summary judgment, PNC argued that their failure to receive notice does not prove improper notice as a matter of law. The Texas Supreme Court has indicated that a movant must conclusively prove all essential elements of their case to grant summary judgment, and the non-movant's lack of response cannot fill this gap.

The court's misapplication of the law regarding when the Notice of Foreclosure Sale is effectively sent is significant for determining the validity of the foreclosure process. The erroneous ruling led to an improper summary judgment that requires reversal. Additionally, the Howards' introduction of irrelevant prior notices from 2009, which were abandoned due to a Chapter 13 bankruptcy filed by Amy Howard, unnecessarily complicated the trial court's evaluation of the 2010 Notices of Acceleration and Sale. The 2009 acceleration, despite being stipulated as properly given, became irrelevant after the bankruptcy, which effectively deaccelerated any previous notices.

Chapter 13 debtors can de-accelerate pre-petition acceleration to cure defaults under 11 U.S.C. § 1322(b)(3) or (b)(5). In this context, the Howards entered into a binding consent order with PNC, signed by the bankruptcy court on January 25, 2011, which abandoned the 2009 foreclosure acceleration in exchange for the Howards’ agreement to make periodic payments. To succeed in a wrongful foreclosure claim, the Howards must demonstrate a defect in the foreclosure process, a grossly inadequate sale price, and a causal link between the two. They alleged a void foreclosure but failed to prove that PNC's use of its pre-merger name in foreclosure documents resulted in an inadequate sale price. Case law, including Charter National Bank v. Stevens, asserts that mere irregularities in foreclosure documentation do not substantiate a wrongful foreclosure claim without evidence of an inadequate sale price. The Howards did not allege that the property sold for an inadequate price, which undermines their claim.

Evidence indicates that the sale price of $825,000 is not grossly inadequate, as Texas law supports that foreclosure prices exceeding 50% of the property's appraised value are acceptable. The property sold for 90% of its appraised value. The Trial Court made an error by granting summary judgment to the Howards, undermining PNC's foreclosure sale. The Howards’ intent appears to be obtaining a free home by challenging the validity of the foreclosure while claiming proper acceleration of the Note. Even if the Howards did not receive proper notice of acceleration, the conclusion is that the 2010 Notice of Acceleration was ineffective, meaning the four-year limitation period for PNC to enforce its Deed of Trust lien had not started. The Howards failed to prove that the debt was properly accelerated in 2010, as Texas law requires clear notices of both intent to accelerate and actual acceleration. The lack of a Notice of Intent to Accelerate in their evidence means acceleration could not occur, and limitations on enforcing the lien did not begin in 2010. The Howards might argue that a 2009 notice suffices for the 2010 acceleration; however, recent Fifth Circuit rulings require a new notice of intent if a prior acceleration has been abandoned. Additionally, PNC is entitled to equitable subrogation, meaning it can assume the lien position of a prior lender if funds from a 2005 loan paid off a valid lien, regardless of the Trial Court's determination that PNC’s Deed of Trust lien is void.

The appellate review of the Trial Court's Final Judgment denying PNC's claim for equitable subrogation involves a factual sufficiency standard for findings and a de novo review for legal conclusions. PNC's claim was supported by stipulated evidence establishing their entitlement to equitable subrogation, specifically that the Howards obtained a $894,000 note to refinance two existing loans, with $888,282.25 used for this purpose. Additionally, PNC satisfied $174,000 in unpaid ad valorem taxes, thus becoming subrogated to both the prior lender's liens and the taxing authorities' interests. The trial evidence was undisputed and irrefutable. The Trial Court's decision not to grant judgment in favor of PNC contradicted the evidence's factual and legal sufficiency. Texas law recognizes the common law right to equitable subrogation, allowing a third party who pays off a lien to assume the lienholder’s rights. This doctrine has been applied to protect lien rights on homestead properties, as demonstrated in cases like LaSalle Bank Nat. Ass'n v. White and Benchmark Bank v. Crowder. The Texas Supreme Court has affirmed that valid liens remain enforceable against homesteads even if the original debt is refinanced, emphasizing that equitable subrogation allows borrowers to maintain their financial stability without risking foreclosure. The overarching aim of equitable subrogation is to restore the borrower to their pre-transaction position, enabling lenders to refinance without increased risk.

In Texas Commerce Bank Nat’l Ass’n v. Liberty Bank, the court established that equitable subrogation allows a party that has paid off a lien to assume the rights of the original lienholder, effectively restoring them to their prior position. The subrogated lien is equivalent to the amount of the original lien plus six percent legal interest from the date of payment. The ruling supports non-judicial foreclosure rights for lienholders with powers of sale, emphasizing that equitable subrogation applies when one party, without voluntary action, discharges a debt primarily owed by another. Texas courts have consistently ruled that equitable subrogation is applicable to prevent unjust enrichment, and trial courts may err materially by denying such relief when evidence supports it. The right to subrogation is not dependent on contractual relationships but is based on principles of equity and justice. The document cites several cases reinforcing these principles and the Texas Supreme Court's broad application of equitable subrogation.

The Texas Supreme Court established that a party seeking equitable subrogation, who pays a debt believing it protects their interest, is not considered a “volunteer,” thus an obligation to subrogate to the relevant lien should be implied. In particular, when a refinancing mortgagee pays off prior liens, this action is deemed involuntary as a matter of law, a principle that applies similarly to tax liens. The Trial Court erred in not granting PNC’s equitable subrogation claims, supported by clear and convincing evidence.

PNC's claim is not barred by limitations; Texas law does not provide a specific statute of limitations for subrogation actions, which are guided by the limitations applicable to the rights of the subrogor. PNC's action, classified as judicial foreclosure related to a real property lien, is subject to a four-year statute of limitations as per Texas Civil Practice and Remedies Code section 16.035(a). 

Even if the Deed of Trust lien were deemed void, PNC would still be entitled to equitable subrogation, effectively stepping into the prior lender’s position for any proceeds used to pay off valid lien interests. Additionally, if PNC pays ad valorem taxes for property preservation, it would also be subrogated to those tax liens. The Trial Court should have recognized PNC’s entitlement to equitable subrogation amounting to $888,265.25 (plus interest) and $174,000.00 for tax liens. The Amarillo Court of Appeals has indicated that the statute of limitations begins upon the maturity of the note that was paid off, relevant in this case as the prior notes are scheduled to mature in the late 2020s.

Limitations on subrogation claims cannot be invoked until four years after the maturity dates of the relevant notes. In cases where a note or deed of trust includes an optional acceleration clause, the statute of limitations does not begin until the holder exercises the option to accelerate. The Trial Court erred by not granting judgment to Appellants in their suit on the Note, as the evidence clearly supported PNC's right to collect on the Note independently of its Deed of Trust lien. Key points established in the evidence include: PNC holds the Note (physically in possession and endorsed in blank), the Plaintiffs defaulted on the Note, all conditions for PNC’s recovery under the Note were met, and the suit was filed within the statute of limitations. The standard of review for the Trial Court’s decision is based on the sufficiency of the evidence for factual findings and de novo for legal conclusions. Even if PNC’s Deed of Trust lien was deemed void, it retains the right to collect on the Note, as Texas law recognizes the distinct nature of remedies provided by a note versus a deed of trust. Foreclosure actions are separate and independent from personal actions to enforce a note, and Texas courts have consistently maintained this distinction. The Trial Court may have mistakenly believed that the statute of limitations had expired on PNC’s right to collect, while an action on a Note must be initiated within six years, contrasting with the four-year limitation on enforcing a deed of trust lien after maturity.

PNC initiated its lawsuit concerning the Note on May 14, 2015, which is within the six-year statute of limitations following the Howards’ claim acceleration. The Trial Court’s decision declaring the Note “Void and Unenforceable” is questioned, as evidence presented, including stipulations, clearly demonstrated that the Howards made, owed, and defaulted on the loan, with the principal and interest amount established. The Note is endorsed in blank, and the Howards have judicially admitted that PNC holds the Note, establishing PNC’s right to recovery. No opposing evidence was presented that could undermine the validity of the Note. The Court's alternative finding of the Note being “Void” lacks any supporting pleadings or evidence. Consequently, the Trial Court erred in denying PNC’s requested relief. PNC seeks the Court to vacate the Trial Court’s judgments, affirm its equitable subrogation claim, and allow for further proceedings regarding the enforcement of its Deed of Trust lien. Alternatively, PNC requests the Court to direct the Trial Court to provide Findings of Fact and Conclusions of Law, permitting further briefing if necessary.